If you are looking to buy a life insurance plan, term insurance is perhaps one of the most important policies you need to consider. They offer comprehensive financial security at a reasonable price, making life insurance plans affordable and accessible to everyone. Additionally, the right policy will offer you a financial corpus in case the breadwinner is no longer there. However, in order to take advantage of these benefits, you must pay premiums consistently throughout the life of the policy.
This article will tell you everything there is to know about term life insurance plans to help you make an informed buying decision.
What is term insurance?
Term insurance is a pure life insurance policy that promises to pay the death benefit if the insured person dies during the policy period. When you purchase this plan, you must choose the amount of coverage and length of term that you want to be covered for.
When is the best time to purchase term insurance?
You can buy term life insurance as early as possible to take advantage of lower premiums and broader coverage. Plus, buying these policies at a young age is cheaper because premiums increase with age. This is the reason why it is advisable to purchase a policy as soon as possible.
Characteristics of a term plan
Here are some of the most striking features of term insurance that make it a highly recommended financial product:
– Due to the lack of an investment element, all premiums paid for the policy accumulate to become a hefty death benefit. This lump sum can help keep your family afloat and serve as income replacement when you are no longer there to support them.
– These plans offer very high coverage at a low price
– You can extend the coverage of your term life insurance plan by choosing riders that give you an extra layer of security against contingencies.
Depending on the financial needs of your dependents, you can choose the death benefit payment option between lump sum and monthly income.
Types of Term Plans
There are many types of term insurance policies. Some of them are:
– Increase term plans
As the name suggests, the sum assured in these plans will increase by a predetermined percentage each year. However, despite the increase in coverage, the premium remains unchanged.
– Plans with decreasing duration
In these plans, the sum assured decreases each year on the principle that your financial responsibilities easily decrease. Therefore, these plans are best for covering loans that come with reduced liability.
– Bonus Return Plans
These term life insurance plans come with maturity benefits given to the policyholder if they outlive the term of the policy.
Tips for buying term insurance
Now that you know what term plans are, it’s time to choose the one that best suits you and your needs. Here are some of the factors you need to consider when buying a term life insurance plan.
Choose the right sum insured.
When calculating the sum insured, the general rule is to keep it at least 15 to 20 times your annual income. However, the amount of coverage will eventually depend on your age, debts, income, dependents, etc.
Choose the right payment option.
You can choose between a vanilla plan and an income replacement payment option. While the former pays the candidate’s death benefit, the latter will divide it into equal monthly installments which are paid over a period of time until the candidate receives the full amount. When choosing the payment option, you need to assess which one suits them best.
You have the option of purchasing your term plan online or offline. But if you prefer to make your own investment decisions, the online option will be perfect for you. Today, you can find many tools available that help you compare policies in real time and calculate premiums very quickly. At the same time, fonts purchased online are relatively cheaper. You can also read important information related to all kinds of policies, such as documents required for health insuranceinclusions/exclusions in your term insurance plan, etc.
Add riders to your term plan to increase its coverage. Adding to your existing plan will help cover additional risks, such as critical illness, permanent disability, job loss, etc. However, note that having a rider will increase your premium amount, so be sure to add the most ones that suit your needs.
Make full disclosure
You may want to withhold information to keep premiums lower, but this can cause problems at claim time. For example, if you are a habitual smoker or drinker, it is advisable to inform the insurance company. However, concealment of information can lead insurers rejection of the claim.
Choosing the right life insurance plan is of crucial importance. Be sure to research the options thoroughly and keep your future goals in mind when purchasing a policy.
Vinod Gill is a writer specializing in writing content on insurance and finance topics. He is a digital marketing consultant, blogger and co-founder of Journalist.